A great letter

Suppose Uncle Sam orders you to raise by 41 percent the price you charge for subscriptions to your newspaper. Would you be surprised to find a subsequent fall in the number of subscribers? If you assigned a reporter to investigate the reasons for this decline in subscriptions, would you be impressed if that reporter files a story offering several possible explanations for the fall in subscriptions without, however, once mentioning the mandated 41 percent price hike?

Unless you answered “yes” to this last question, I wonder why you published Mickey Meece’s report on today’s record high teenage unemployment rate (“Job Outlook for Teenagers Worsens,” June 1). Between 2007 and 2009, Uncle Sam ordered teenage workers (who are mostly unskilled) to raise the price they charge for their labor services by 41 percent. (That is, the federal minimum-wage rose from $5.15 per hour in 2007 to its current level of $7.25 in 2009 – a 41 percent increase.)

Does it not strike you as more than passing strange for your reporter – assigned to help explain why teenagers today have an increasingly difficult time finding jobs – to ignore the fact that these teenagers are ordered by government to raise significantly the wages that they charge their employers?

Sincerely,
Donald J. Boudreaux

How many stories that mention youth unemployment mention that it is now illegal for a teenager to offer to work for less than $12.75 an hour? Teenager workers have been priced off the market, hence the 25% youth unemployment rates.

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Comments (45)

krazykiwi

New Plymouth / Taranaki Daily News, 15 May, had a very nice piece on youth unemployment that spent a lot of time on the youth minimum wage. I’ve not seen anything else other than Roger Kerr’s editorials in various papers.

Shame Key didn’t let Douglas’s youth unemployment bill get through to committee. Can get that the votes weren’t in it though: nobody understands economics: the folks getting a pay cut would blame him, and the folks getting a job who otherwise wouldn’t be employed would probably blame him for their not getting paid more. Would have been nice to have had it get through to committee though before he stuck his finger up in the wind….

side show bob

Why should we expect any difference in NZ. A fair proportion of our politicians come from a world devoured of reality. When a good part of your life has been supported by the state is it any wonder they believe the state is the final arbitrator. There must be a get deal of confusion in the ruling classes when they find the world doesn’t follow the rules they thought it did.

RRM

But it sounds much more impressive when you say “41%”… ALMOST makes you sound like you don’t begrudge yoof workers the pittance you can get away with paying them.

You’d only need to up-sell one Big Mac combo to large to recoup $2.10. So drop this 41% BS, and please explain how a difference of $2.10 per hour prices anyone out of any job market.

[DPF: Have you ever employed staff? If you have 100 staff and the cost of paying them goes up 40%, then you are probably going to end up with less staff.

In this case though the issue is not a minimum wage per se, but abolishing youth rates. Youth rates allowed young workers to gain an initial job or two, so they would gain work experience. Instead now 25% of them remain unemployed until they are 20, and by then who wants to hire a 20 year old with no work experience?]

markm

RRM ($2.10 x 40 )x52=$4368

Presumably employers think that the increase brings them to close to the wage level of an experienced worker who dosent need to be taught to do the job.
The experienced worker probably makes less mistakes and has higher productivity.

So drop the bullshit RRM , no need to explain how $2.10 prices any one out of the market because the higher unemployment for youth confirms it has.

Why isn’t today’s left aware of their history regarding the minimum wage and its use as a eugenics tool?

“…these progressives argued that minimum-wage-induced disemployment was a social benefit. Legal minimum wages and other statutory means of inducing undesirable groups to leave the labor force were, in the progressive view, a eugenic benefit.”

Direct expenses are direct because they directly relate to the revenue you receive (ie: if i receive more money from selling hamburgers, i pay more to buy meat patties).

Indirect expenses are fixed (ie: selling an extra hamburger doesn’t increase salary costs – unless i’m selling SO many more that i need more staff).

So, upselling one combo increases my Revenue, but it also increases my direct expenses. Indirect expenses do stay the same though.

I’ve no idea of a McDonalds’ split between direct and indirect, but the point is that $2.10 in revenue does not equal $2.10 in extra profit that could potentially go to wages, in fact it’s probably quite a bit less.

3) As others have point out – your argument seems to be that $2.10 is a tiny amount.

Sure, if i only employ one employee for one hour a week, i might handle and extra $2.10 in expenses.

4) An extra $2.10 prices people out of the market in exactly the same way the old minimum wage meant people couldn’t find a job at the old rate – they weren’t making a business enough money to make it worth them hiring that person. Who is going to hire someone that earns their business $10 an hour if they have to pay them $15 to do so. In fact, even if they earned the business $16 an hour, it probably wouldn’t be worth it because the business could just put their money in the bank and make a better return, at a much better rate.

The only difference with the rise in minimum wage is that it prices MORE people out of the market than the old rate did, because many who were making their employee more money than it cost them to hire them are now making their employee less than the minimum required to hire them.

Viking2

To Nationals shame forever (but seemingly normal for a free enterprise National Party) they colluded with Labour, the Greens, Maori and et al to vote Acts youth Bill out.
105 to 7
Disgraceful behavoir from the free thinking party of free enterprise.
Remind me of their founding principles again.

We blogged on this at the time but DPF you were too ashamed of your mates to bother to make an issue of this, even though you have raised the issue more than a few times and I’m sure you support the need to wind the clock back.

There are many good reasons to return to youth rates including asking why we have so many angry young men going to jail, why we have so many young men disenfranchised by an education system that they don’t fit into? Why we aren’t harnessing their energy into a work force that is aging very rapidly?
The first of the after war agers hit the streets this year. Born 1945 and 65 this year. Have just read that its anticipated by a retirement village operator that an additional 100,000 hit the streets next year and so on for a number of years. Some of us want to quit working our arses off and many would like to sell their businesses but our Govt.’s have seen fit to destroy the opportunities to train the young generation so we can do this.
Why are we exporting their opportunities and thus our countries wealth to China. We won’t allow junior, training employees to earn $300 per week(40 Hours) but we will allow their jobs to be taken by Chinese, Filipinos. etc for much much less. Why can’t young people answer the telephone for call centre’s for example. At least we might get someone who speaks our own language? ( well kinda, I know they are teenagers.). But you get the general idea.

Lindsay Mitchel blogged on this a few weeks back and Muriel Newman also.

Its an eternal disgrace to the mind numbing politics of this country that we continue to disenfranchise our own people for the betterment of those of another country.
That’s not what those that are elected to serve our nation are paid to do.

Rex Widerstrom

If that is indeed the minimum wage then any employer who can’t manage to pay that to someone who creates their wealth by working for around 2,000 hours a year doesn’t deserve to be in business.

$5.15 x 40 x 52 = $10,712. No wonder it was raised… after all, the US had supposedly abolished slavery 8-|

If however we’re talking youth rates then what matters is the change, if any, in the differential between youth rates and the minimum wage. As Repton points out, the letter seems to inply there is no difference. Can someone clarify? Otherwise the debate is somewhat moot.

Viking2

Well the Chinese work for $2.00 per hour x 60 hours x 52 weeks. $6240 a year. And that’s imported into our economy via products we used to make.
They don’t have an issue with it.

Along with the stinking dead fish products from the Mekong Delta which you all love to eat.
If you wonder why people are always getting sick and why a year or two back our hospitals were groaning under people getting sicker in hospitals you need to look hard at the food they were dished up by the suppliers.

It will happen again for cost has become more important than food safety.

Kimble

There is no difference in teenage and adult minimum wage as far as i know, but the point of the letter is still valid. People under 25 make up almost half of the population earning minimum wage and around half of those were teenagers.

So any increase in the minimum wage will be felt by the young more than any other demographic. If you are scratching your head over youth unemployment and you have already dismissed, or not even considered, the impact of the minimum wage…. well… just leave your remaining IQ in the bucket by the door on your way out.

wat dabney

Rex Widerstrom

Viking2: What does $6240 buy you in China vs what $10,712 would buy you in the US? Any idea? I’ve tried to find a relibale comparison of housing affordability but can’t find one that includes the US with China, or indeed NZ with China.

Intertestingly (but wildly off topic, for which I apologise) the Demographia Housing Index rates NZ, Australia, the US, Canada, Ireland and the UK.

NZ has the second worst affordability (5.7) after Australia (6.8). Canada and Ireland manage 3.7 and the US 2.9 while the UK – perceived by many NZers as having high house prices – rates 5.1.

Gee our politicians have sure run the country to the benefit of ordinary working people. Not.

Rex Widerstrom

Kimble says:

There is no difference in teenage and adult minimum wage as far as i know, but the point of the letter is still valid.

Well kinda. But surely the writer ought to be suggesting the US government legislate for youth rates, not that they hold down the minimum wage as an antidote to youth unemployment? That makes all the logical sense of saying we should subject everyone, even if they’re a middle aged citizen with no criminal record, to intrusive surveillance and searches just to catch a handful of terrorists. Oh, wait…

Sonny Blount

If that is indeed the minimum wage then any employer who can’t manage to pay that to someone who creates their wealth by working for around 2,000 hours a year doesn’t deserve to be in business.

90% of business will just whack it on their prices until their frequency starts to drop and remove wage rises above the minimum.

If you employed low wage staff Rex, you would know that the productivity from one to the next frequently varies by 100-200% or more. Allow employers to give wages to the staff that generate the revenue rather than the ones that ride their back. Staff that currently have a wage above the minimum, hate raises to the minimum because it comes out of their pocket.

Nobody understands the value of incentivising staff and paying as much as can be afforded as well as employers and business owners. When they aren’t paying alot it is probably because they know the value of the results.

It is better for somebody to be poor for a few weeks and learn how to offer productivity at work and get a pay rise, rather than cushion them from reality so they treat a job as a right for years on end. Without consequences for failure you will never achieve success.

Minimum wage proponents keep your noses out of what you don’t understand!

Simon

Viking2 v. interested in your comments re MeKong D and fish etc. Could you expand or provide links. Don’t doubt you or anything but v interested to hear what you have got to say. Cheers. Esp from a fish production pov.

Viking2

Simon; was on the radio news yesterday. Apparently sold in Countdown or something. Just heard my staff talking about it and had a customer comment they had just come back from Vietnan and saw all the dead fish being picked up.
Can’t enlighten you more than that.
Except to say that after 33 years in the food industry in this country I’m appalled at the way our food supplies and production are compromised now with open borders and no control. A quick argument is “where in those Asian countries does anyone find potable clean water?

We have discarded a real competitive advantage to the multi national supermarkets chains and multi national food service companies.
Remember the oysters that made the All Black supporters sick. Recall all those people (our sickest) in hospitals a year or so back getting even more ill. Blogged about it here at the time. One major food service company dishing up contaminated food.

Russell Brown

(That is, the federal minimum-wage rose from $5.15 per hour in 2007 to its current level of $7.25 in 2009 – a 41 percent increase.)

Is the kind of too-clever-by-half statement that a good reporter — or blogger — shouldn’t really take at face value.

The 2007-2009 increase was solely a consequence of a single order to raise the federal minimum wage; it was simply phased in in three stages.

That increase was the first in 10 years — in that time the purchasing power of the minimum wage had fallen 20%, and a long way below the official federal poverty line for a two-person family.

And you can’t really attribute national unemployment trends to the change anyway — given that by the time it happen, 32 states already stipulated minimum wage rates higher than the increased federal rate.

And you’d really want to be careful about attributing employment trends anyway. When the federal rate was increased, Kansas, with a poverty-lovin’ $2.65/hr, was the only state with a minimum wage set below the federal one. Unemployment rocketed there 2007-2009 like it did in most places. This was, after all, a recession. But Kansas’s rate, affecting tens of thousands of workers, rose by more than 200% in January this year, to $7.25. The state’s unemployment rate promptly fell.

These are all facts, surely, that a reporter rather than a repeater would have taken the trouble to find out.

Simon

The 2001 increases in the youth minimum wage did not coincide with a reduction in youth employment. That is demonstrated in this study by Treasury that found evidence of positive employment responses to the changes for teenagers following the youth minimum wage increases, and that 16-17 year-olds, in particular, increased their hours worked by 10-15 percent following the minimum wage increases.

However, the 2008 increases in the youth minimum wage did coincide with a reduction in youth employment. The difference between what happened in 2001 and what happened in 2008 would indicate that the 2008 reduction in youth employment was merely coincidental to the youth minimum wage increase, not caused by it.

The fallacy of your argument DPF, and that in the letter, is that it presupposes employers employ people because they have some spare money lying around, in the same way people spend money on discretionary items such as newspapers because they have some spare money lying around.

Employers employ people because the think it will improve the profitability of their business. In 2001-2003, with a strenghthening economy, employers were prepared to take the risk that taking on young and largely unskilled labour would improve their profitability. In 2008-2009, with an economy in recession, they were not. Simple as that.

“Employers employ people because the think it will improve the profitability of their business.”

BANG!!!!…..Toad shoots himself in the foot.

When you raise the minimum wage you also decrease the profitability of those on the margins, somebody who might have been profitable at $10.00 an hour can very quickly become unprofitable at $12.75 an hour.

You can argue all you like Toad but the figures back up what DPF and others have said about the rise in the youth wage having a devastating effect on youth unemployment.

The truth is that Toad and the rest of the Greens would rather see a youth on the dole than see him earning $400 a week.

bruv, what about the figures following the 2001 increase in the youth minimum wage. Read the Treasury report I linked to. It does not support your assertions. I’ve just commented on another thread about people ignoring the evidence and making things up, and true to form, you give me a prime example.

The most you can assert on the basis of the evidence is that there may be a causal relationship in some economic circumstances between increases in the youth minimum wage and a lowering of the youth employment rate. The Treasury report clearly refutes any assertion that there always is such a causal relationship – the youth minimum wage was raised in 2001, and youth employment outcomes subsequently improved.

Eddie

Toad,

There were a lot of other factors in play during that period including a massive transfer of unemployed into the education system using vehicles such as Te Wānanga Aotearoa so while I agree that there is probably no statistical evidence supporting a causal relationship between minimum wages and youth unemployment one has to consider the current economic conditions, levels of youth unemployment and explore which incentives or factors may help increase youth employment.

Toad et al, just as with climate, correlation does not equal causation.

And relying on Treasury figures, which are derived from stats returns from the ‘white’ economy, is especially dodgy as to correlations. Stats returns are not noted for their reliability, and the ‘black’ economy – variously estimated at a minumum of 10%, or during changing times, as high as 25% – doesn’t do stats.

Better to look at human behaviours and actual biz experience:

Teens are bulletproof, hormoned to the hilt, and conditioned for Pleasure Now, Dammit! Generations of marketers have honed their skills on this particularly credulous yet oddly lucrative demographic. And it shows…

Thus they (the teen creatures) tend to be intermittently productive, unreliable timekeepers, and not infrequently, chemically propelled both at work and at play.

Yet they are by law required to be paid the same as, f’rinstance, a 46yo empty-nester with a good work ethic, recently made redundant after 16 years in the same job, clean licence and can actually pass a drug test first go.

So, Toad, are ya feelin’ lucky?

Would You employ that poo-catcher-wearing 17yo in yonder battered Skyline?

Grendel

toad is trying to tell us that when the minimum wage goes up, employers hire more people, right?

muppet.

As an employer, if i have to pay more for staff with no win win in terms of productivity i will not hire that staff person.

once my PA gets up to speed and we have increased turnover to cover her wages by enough, we are looking at hiring an entrant employee, ie a school leaver or similar who can do a very basic job (photocopying filing etc) while my PA can work on the more complicated stuff she has learned.

why would i hire a 17yr old for $12.75 an hour? its not worth the risk. hell, until i do the numbers i may not be able to justify hiring a 25yr old for that amount. so the minimum wage may cost someone a job becuase we are not allowed to agree on $12 an hour.

if $12.75 is viable as an expense, there is no reason to hire a young person, they are too flightly and for that cost i may as well hire someone older who (should) be more grounded.

when will the greens and other parasites understand how business actually works? well first they would need jobs that tax payers did not pay for.

krazykiwi

@toad et al: I’m assuming that you’ve linked to the rather nice Stillman and Hyslop piece on the earlier changes to youth minimum wages that put 18-19 year olds to the adult rate, right? They showed pretty convincingly that during the tightest labour market New Zealand’s experienced in rather some time, increasing the youth minimum wage didn’t have much effect. But we do expect that price floors have strongest effect when they’re most binding, not when folks are having to pay a premium above the floor to attract any workers, even youths.

I agree that more work needs to be done to show causality with the latest minimum wage youth hike and youth unemployment. But the simple regression I ran shows that there’s there a strong case to be answered: something incredibly weird happened to the relationship between youth and adult unemployment starting around third quarter 2008 – something that hasn’t happened in any prior recession going back to 1986. I can’t think of anything that would have done it other than the minimum wage change. And I don’t think it’s post hoc prompter hoc given reasonably strong theory expecting exactly that relationship.

And I don’t think it’s just your “unwilling to take a punt in recession” theory. Rather, it’s “unwilling to take a punt in recession if the price is the same as for a less risky adult worker”. Why? Again, the residual plot from the regression I ran. We never saw a run up in youth unemployment relative to adult unemployment like the one we’ve just seen.

‘Poo-catcher’ is the style of jeans that reserves a lot of volume in the seat, and a very low crotch – near-knee, sometimes, for – well, what else could it possibly be for?

As I may have mentioned, teens are an absolute goldmine demographic, because a tiny style change, a tweak to the length or volume, or a new graphic on the top of the board or ski, makes the old one Completely Useless, to be hocked off on TradeMe at pitiful prices, and the proceeds applied to a down payment on the New One!

Just look at the trade in mag wheels, particularly the ‘drug-dealer’ fully chromed ones, and say to yourself – some idiot has stumped up $2-4 grand for that sorry sight…..because the original manufacturer certainly didn’t.

And I don’t b’lieve they’re earning much of a return on that Investment.

Toad – can’t wait to see ‘Reduce Minimum Wage for Yoof’ on the Green hoardings – won’t that do something or other to voting patterns?

Kimble

I want to point out also, that the letter does not make any value judgements regarding the minimum wage. Rather Don points out the idiocy of ignoring some reference to the minimum wage increase when talking about unemployment in a demographic that is strongly represented in the minimum wage population.

“So reduce the youth minimum wage, and you’ll employ the young person. Leaving the 46 year old (with 3 teenage kids) to languish on the dole. Goodo!”

I think this shows the danger of letting the Greens get any sort of power. They cannot help themselves from interferring, or from thinking that they know how things oughta be. Who deserves the job? The more “needy” person as determined by the Greens. Given that that is the goal, the Greens consider what policies they could use to force that outcome. At this point they might refer to “market” mechanisms, but their understanding of the market is so bad that the mechanisms they want to use will have the opposite effect. Talk of any “market” solution is purely lip service in any case. Thats just the Greens trying to make their isane policies more palatable. Its a euphemism at best.

Once again, toad has shown in a couple of sentences how the over-riding Green philosophy is “we know better than you, so get out of our way while we fix EVERYTHING.”